John Buell

Romance of Small Business

Its a familiar refrain in the business media: Government regulations impede recovery. Government is especially harmful to small business, the engine of economic growth. So the stage is set for a grand morality play: small business versus the cancer of big government.

During a mid September CNBC Squawkbox, Bernie Marcus, the retired CEO of Home Depot, lovingly recounted his small-business past and lionized his small-business friends. They are all petrified by Washington. They hold government at fault for rising health care costs. They do not even blame insurance companies for raising premiums. These companies were also victims of the D.C. bureaucracy. Obama is imposing unions on business and is rewriting 50 years of labor law. Economic life would be better if D.C. just shut down for a year, with the exception of funding the war.

The business offensive resonates with an earlier populism. Nonetheless, it omits a crucial theme of the populist movement. Though populists, like Americans generally, have been suspicious of big government, another major concern has always been the power of the large corporation. Todays corporate lobby is highly selective in its attacks on big government. Talk of the beauties of unregulated markets is used to forestall consumer or worker protection even as big business then reshapes regulations and subsidies to feather its own nest.

Would we be better off reverting to a truly unregulated market economy, as libertarians advocate? This is an economy where modern technology enables vast economies of scale  and also power abuses by market players  where technology has many spillover effects, and where economic and natural systems are in complex contact. Regulation of the competitive process, products, and technologies is imperative. Government has always played a large role in establishing markets. With every crisis the extent and intensity of government intervention grows.

Rather than romanticize small business, or fantasize about perfectly competitive, self- regulating markets, progressives should highlight the one-sided nature of government intervention and fashion more compelling paradigms of government regulation.

Lets ask the questions the sycophantic CNBC hosts probably never even imagine:

1) If small business is a big job creator, isnt it also, as Dean Baker has pointed out, the largest job destroyer? Though public policy should not tolerate unfair competitive pressure on small business, should these businesses be given a pass on occupational or environmental regulation?

2) With D.C. shut down and no food and drug regulations, would our drugs and food become more or less safe? Would consumer confidence grow?

3) If drug and medical costs are rising, what role has government subsidy to the health insurance and pharmaceutical industries played? As Baker has asked repeatedly, what role has government patent protection played, a market intervention that worried even Adam Smith?

4) Who has rewritten 50 years of labor law? Didnt Bush IIs NLRB turn a blind eye to firing workers who even suggested an interest in unionization?

Of course, had this been a genuinely open conversation, the discussion might well have turned back on me. Current drug and food regulations failed to prevent the salmonella outbreak. And with regard to the larger financial crisis, deregulation and repeal of Glass-Steagall played a major role, but progressives must ask a deeper question. If markets are not as simple and self-regulating as some business ideologues imagine, can simple regulations or regulatory methods provide a one-time fix or guarantor of economic justice?

To change this dangerous dynamic, the regulatory paradigm itself needs to be altered. Elizabeth Warrens role is significant not merely because she is unlikely to be captured by the industry but also because she understands the need for and possibility of a different kind of regulation: This is an agency that will be the first to be born digital ... It will have the capacity to communicate with millions of Americans by just hitting a send button. It will also be an agency where millions of Americans have the capacity to communicate with the agency by hitting a send button The notion that part of how one comes to understand and define the problems in the credit area will change if this agency hears from people who are experiencing it it can be built into the research function of the agency ... It changes the concept of how regulations work, of how regulations are tested, of how regulations are communicated and how they are enforced. So, I think of this as a real opportunity to try a whole new model, to think about this agency from a different perspective.

Stay tuned  or plugged in  to see whether Warren is given a real chance to launch the first digital regulator.